Market Report: City bets on a private-equity swoop at Hilton

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Many investment bankers will have just finished counting their Christmas bonuses, but their thirst for corporate activity shows no sign of being quenched. They are in luck: there still seems to be a glut of potential targets, as Hilton Group confirmed yesterday.

The group is little more than Ladbrokes, Europe's largest betting company, after it sold its hotels chain to the US Hilton Hotels in December, and if private-equity firms have their way it won't even get to keep Ladbrokes.

Hilton confirmed yesterday it had rejected a £3.7bn bid for Ladbrokes from CVC Capital, and the rival private-equity firms BC Partners and The Blackstone Group are also thought to have made offers for the business.

Traders think it is a question of when, not if, Ladbrokes is sold, as CVC's offer is towards the high end of valuations. The investment bank UBS reckons that Ladbrokes is worth £3.8bn, and sources said it is only a matter of time before a better offer is made. The private-equity industry has a long history of investing successfully in gambling businesses and has coveted Ladbrokes for some time.

Hilton Group shares rose 8.75p to 375.25p; the FTSE 100 closed down 54.3 points at 5747.3.

William Hill, Ladbrokes' main rival on the UK high street, capitalised on the interest in Ladbrokes, and rose 10.5p to close at 589p, but Stanley Leisure failed to take advantage and dropped 7p to close at 750p.

Market sources also said that Permira, the buyout firm that was once part of UK investment bank Schroders, is in the final stages of preparing its bid for HMV Group, the UK music and book retailer. The source said that Permira's offer is likely to value the company at between 220p and 230p a share. HMV said it had received a bid on Monday but profit-taking pushed its shares down 1.75p to 179.25p.

Shares in the UK defence research agency Qinetiq are not due to begin trading until next Wednesday, and the float has come under fire for a number of reasons, not least of which is the fact that retail investors are not being given a chance to participate. Anyone wanting to get involved will have to go through a broker and, as a result, will have to take their chances as to what price they pay for the stock.

Retail brokers are busy taking orders, and one said there was "phenomenal" interest in the shares. The spread better IG Index is taking orders, and traders expect a strong start for the stock - it is already being offered at 211p in the grey market and, with another two weeks to go before trading starts, many expect it to rise substantially before then.

Traders were watching the struggling UK retailer Woolworths yesterday as more than 170 million shares changed hands - volume has broken 100 million only twice since July, although the price fell a penny to 30.5p. Traders speculated that Baugur, the Icelandic investment firm that counts Karen Millen and Big Food Group among its investments, was building a stake, but others said the volume was down to large institutional investors shifting the stock between funds.

Quintain Estates spent much of the day as the biggest riser in the FTSE 250, with takeover speculation surrounding the owners of Wembley Arena. Market makers said there was a big buyer in the market looking for stock, and its shares climbed to a mid-session high of 707p, up 62p. That rise tempted some sellers to take advantage, and the stock closed at 677p, a rise of 32p. Meanwhile, the oil explorer Burren Energy was also in focus as it revealed it had not found any recoverable oil in its M'Boudi field in the Congo. Although the company said the impact on finances would be "negligible", the market did not see things the same way and its shares tumbled 86.5p to 1,010.5p. The house broker Seymour Pierce reiterated its "buy" advice despite the news, saying there is still plenty of upside in Burren's remaining reserves.

In the small caps, Biofuels Corporation was well bid as it confirmed that its plans to start production of biodiesel fuel were on track. One trader said the majority of yesterday's rise, 34.5p to 160p, or 27.5 per cent, was down to short sellers closing positions. He said: "I'm not seeing many new buyers, but lots of short sellers thought the company was not going to start production in time. They have been caught with their pants down on this one."

The theme of the month in the smaller companies is emerging market mining shares. There was more good news for the Turkish gold miner Ariana Resources, up 2p to 12.75p, Pan African Resources, a gold miner with assets in Mozambique, up 0.37p to 4.62p, and the South African miner Jubilee Platinum, up 5.5p to 74.25p. All reported increased finds as traders speculated that the bull run for mining companies has legs.